Wages and Employment on the Rise, But Vary by Pay Level

Employment and pay may be on the rise on the average, but the picture gets complicated when examined by compensation levels.

Employment and pay may be on the rise on the average, but the picture gets complicated when examined by compensation levels, according to the ADP Workforce Vitality Report.

Employment growth during the first quarter of 2015 was the strongest, at 5.8 percent year over year, among employees making at least $75,000 a year. Jobs in the $20,000 to $50,000 range, as well as those paying $50,000 to $75,000, saw 3.2 percent growth. The lowest employment growth was among jobs paying less than $20,000 a year.

The improved outlook for better-paying jobs is encouraging economic news. Although lower-paying jobs have represented a significant amount of the total job recovery, these newest figures show that high-paying jobs were being added at a faster rate than low-paying ones. The relatively strength of better-paying jobs will help strengthen the overall economy.

When it came to pay, however, growth took on a barbell effect, with the greatest increases at the bottom and top. Compensation at the lowest levels grew by 1.6 percent, not surprising because even a slight increase would indicate significant growth as a percentage of previous wages. Pay for the highest group was up by 0.3 percent, which could be seen as a sign of continued labor market recovery. However, growth rates for the middle two groups, which would be the bar in the barbell, were, respectively, -0.1 percent and -0.3 percent, or a slight decrease.

The results are not necessarily what industries were expecting. For example, manufacturers, whose employees typically fall into the middle two pay tiers, were upbeat about their prospects coming into this year, said Chad Moutray, chief economist of the National Association of Manufacturers. "Demand was up, production was up," he said. "They came into 2015 with a lot of optimism. We saw very robust growth in manufacturing hiring, corresponding."

However, as the Workforce Vitality Report showed, prospects in the middle tiers were mixed, and Moutray expects that growth among manufacturers could continue to slow. "In [our] March survey, when we asked members about hiring intentions over the next 12 months, it was 1.9 percent," Moutray said. "That rate spiraled to 0.8 percent [in May]. That reflects the more challenging environment that we've seen over the last few months. But I'm still optimistic that we'll see a rebounding in manufacturing activity and hiring in the second half of the year."

“Much of the recent weakness in manufacturing employment can likely be attributed to the stronger dollar making U.S.-produced goods expensive compared to those made overseas,” said Ahu Yildirmaz, VP and head of the ADP Research Institute.

The Workforce Vitality Report results also suggest that many companies may face a number of challenges in the near future. Those with higher-paid employees will see more competition for talent as the number of jobs increases, which could eventually drive up wages more than in the first quarter. Companies with employees in the middle two pay levels have slower rates of employment growth, but might still see increasing wage pressure. In the lowest pay group, wages are growing more quickly. Although the number of people employed has slowed, that could change as more companies try to avoid additional expenses under the ACA. Some strategies might help:

Increase HR efficiency — as employment levels increase, HR systems for the sourcing, hiring, and onboarding employees will become more burdened. Unified solutions and increased automation could prove useful.

Control Hiring Costs — increased hiring brings competition for talent, which could increase labor costs. More efficient hiring as well as the application of available tax credits could help reduce the impact.

Leverage Data — by mining internal and external data creating actionable insights, companies can improve the decision process over when, where and who to hire.